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Is it Malpractice Having Competing Patent Clients?

The Supreme Court for the Commonwealth of Massachusetts defined the parameters of subject matter conflict of interest for technology law firms handling to patents for two different clients. Maling v. Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, Case No. SJC-11800 (Mass. Sept. 8, 2015) (Available Here).   In dismissing plaintiff Maling’s complaint as failing to state a cause of action, the Court stated that plaintiff did not allege that the claims in his patent and the claims in the third-party patent (Masunaga Optical) were identical or obvious variants of each other such that the claims in one application would necessarily preclude claims contained in the other. Further, plaintiff did not institute an interference proceeding in the USPTO Patent Office nor did he allege facts supporting an inference that defendant law firm (Finnegan, Henderson) took positions adverse to plaintiff and favorable to the third-party client during the prosecution of their respective patent applications.

The Massachusetts Supreme Court distinguished an earlier case, Sentinel Products, which found a conflict of interest when one firm prosecutes patents for two competing clients when the firm’s attorneys testified that they thought that the applications of these two clients overlapped and testified that they were unable to discern a patentable difference between them. Sentinel Prods. Corp. V. Platt, Case No. 98-11143 (D. Mass. July 22, 2002). The court called this “claim shaving” which resulted in altering the claims in one client’s application because of information contained in the other client’s application. In the present case, plaintiff did not allege that the claims in his application, which were ultimately patented, were altered or narrowed in light of the third-party client patent application claims.

Plaintiff alleged that defendant law firm had a conflict of interest between him and another law firm client, Masunaga Optical. Importantly, both the plaintiff and the third-party client obtained patents for their respective screw lists eyeglass technology. However, plaintiff had sought to retain defendant law firm to obtain a legal opinion regarding the similarities between the third-party’s patents and plaintiff’s patents. Defendant law firm refused to provide such an opinion because of the potential conflict between plaintiff and the third-party client. As a result, plaintiff alleged that he was unable to obtain significant funding for his product, his patents were greatly diminished in value and he lost millions. In his complaint, plaintiff asserted breach of fiduciary duty, legal malpractice, unfair or deceptive trade practices and any in equitable conduct before the USPTO Patent Office. However, the court found that all of the counts hinged upon the existence of an undisclosed subject matter conflict of interest arising from defendant law firm’s representation of both plaintiff and third-party client in the screwless eyeglass technology.

Defendant law firm successfully obtained four different patents for plaintiff on his screwless eyeglass technology after conducting prior art searches. During that same time, defendant law firm represented also represented a third-party client for its screwless eyeglass technology.

Massachusetts Rules of Professional Conduct prohibit a lawyer from representing a client if the representation is directly adverse to another client or where there is a significant risk that representation of one or more clients will materially will be materially limited by the lawyer’s responsibilities to another client, a former client or a third person or by personal interest of the lawyer. The USPTO has a similar conflict of interest rule at 37 C.F.R. Section 10.66. This USPTO Rule discusses refusing representation if the client will be or is likely to be adversely affected or is likely to involve practitioner in representing differing interests.

According to the court, “subject matter conflicts [regarding patents] do not fit neatly into the traditional conflict analysis.” Regarding the Massachusetts Rule, the court found that “directly adverse” does not extend to the simultaneous representation in unrelated matters of clients whose interests are only economically adverse, such as representation of competing economic enterprises in unrelated litigation,. This does not ordinarily constitute a conflict of interest and thus might may not require consent of the respective clients. The court then cited a case involving broadcast licenses wherein a law firm simultaneously represented two clients in the preparation and prosecution of applications for radio broadcast licenses from the Federal Communications Commission (FCC). Curtis v. Radio Representatives, Inc., 696 F.Supp. 729 (D.D.C. 1988). In that case, there was no conflict of interest. The court explained that the conflict of interest would only arise between the two clients if there was an “objectionable electrical interference between the two [radio] stations.”

The court then applied the same theory to the present case indicating that plaintiff had not initiated an interference proceeding in the USPTO, did not assert that the claims were identical in both his patent and the third-party patent, and did not claim or allege in the complaint that the patent claims were obvious variants of each other.

Regarding whether defendant law firm materially limited its representation of plaintiff in light of its representation of the third-party client, the court discussed the Sentinel Products case wherein there was testimony that the two competing clients had applications with patent claims that overlapped, that there was no patentable difference between the two applications, and that one of the applications for one the clients had claims which were altered because of information in the other client’s application. Therefore “claim shaving” establishes a subject matter conflict of interest.

The court also noted that patent law firms should have a robust process to detect potential conflicts between their clients.

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